When it comes to building a long-term stock portfolio, diversification is key. You want to own the highest-quality businesses, but you also need to ensure your investments are spread across multiple industries. And when it comes to the retail sector, two of the best stocks to buy and hold for the long haul are Dollarama (TSX:DOL) and Canadian Tire (TSX:CTC.A).
In this environment, investing in retail stocks requires a tonne of research. Retailers can offer significant growth potential. However, when it comes to businesses that sell discretionary products, they may be more vulnerable to an economic slowdown and reduced consumer spending.
Dollarama and Canadian Tire are different, though. While they do sell some discretionary items, much of what they offer is essential. And although they operate different types of businesses and trade at very different valuations, both have plenty to offer investors today.
So, if I had $7,500 earmarked for retail exposure in 2025, there’s no question these two names would be at the top of my list.
Dollarama stock continues to prove why it’s one of the best
There’s no doubt that Dollarama is one of the best stocks you can own in Canada. It has an exceptional track record of growth, continues to expand rapidly, and even performs better when the economy faces headwinds.
The fact that it sells essential goods at discounted prices is a business model that’s always resonated with consumers. And now, Dollarama has also shifted to growth outside of Canada through its investment in Latin American dollar store chain Dollarcity, adding even more long-term potential.
The one knock on Dollarama, though, is its valuation. Growth stocks typically trade with a premium, but usually, that premium moderates as the company gets bigger. With Dollarama, the trend has been the opposite. The better it performs, the more investors want in, and the more expensive the stock has become.
Today, DOL trades at a forward price-to-earnings (P/E) ratio of about 38 times. That’s significantly above its five-year average of 27.4 times and even further above its 10-year average of 26.6 times. So, it’s clear that in recent years it’s only become more expensive.
Is it a good time to buy?
And while it’s never ideal to buy a stock at or near its all-time high, especially when there are plenty of strong stocks trading at a discount due to all the current volatility, it’s also true that waiting for a pullback in a stock like Dollarama might mean you never get in at all.
There’s a reason it continues to trade at record highs while others sell off. Investors recognize the quality, the consistency, and the resilience of its business model.
Furthermore, the fact that Dollarama is hitting new highs while so many other top stocks are under pressure is a testament to just how impressive the business is.
So, although it’s not a straightforward buy due to its hefty valuation, one thing’s for sure, Dollarama is easily one of the best Canadian stocks to own for the long haul.
Canadian Tire is cheaper, but still offers quality
Canadian Tire, on the other hand, has had a more challenging time recently. It’s faced several economic headwinds over the last few years, from rising interest rates and inflation to inconsistent seasonal weather.
However, that doesn’t mean it isn’t a high-quality stock. In fact, it still has a tonne of long-term potential and remains one of the best-known retail brands in the country. Plus, it’s significantly cheaper than Dollarama.
Right now, Canadian Tire trades at a forward P/E ratio of just 11.7 times. That’s right in the middle of its five-year range between 8 times and 14 times earnings, making it reasonably priced in today’s market.
Plus, in addition to the more attractive valuation, Canadian Tire also pays a significantly higher dividend. Its yield, which currently sits at 4.7%, is a compelling return for a retail stock, especially one that still has attractive long-term growth potential.
So, although it hasn’t grown as quickly as Dollarama, it’s still consistently profitable and has plenty of long-term growth prospects, making it one of the best dividend growth stocks to buy in the retail sector.
